Sajid Javid Picked to Steer the British Economy Through Brexit

(Bloomberg) -- Sajid Javid, the former U.K. home secretary and a onetime managing director of Deutsche Bank AG, was named chancellor of the exchequer by Prime Minister Boris Johnson and tasked with managing the economy through Brexit.

Javid, 49, becomes the first ever ethnic minority chief of the Treasury and the first since Norman Lamont in the early 1990s to have worked in the finance industry. A previous rival to Johnson for the leadership of the ruling Conservative Party, he replaces Philip Hammond, who resigned on Wednesday before he could be fired.

Among the challenges awaiting Javid are working with Johnson to safeguard Britain’s economy, businesses and banks as the U.K. seeks to withdraw from the European Union, possibly without a deal to cushion the blow. Javid voted against Brexit in the 2016 referendum although he describes himself as a euroskeptic.

He takes office a day after the International Monetary Fund revised up its estimate for U.K. growth this year to 1.3%, but warned that Brexit posed to a risk to the economy. Still, the economy has performed better since the 2016 referendum than many forecast, with unemployment now at its lowest since the 1970s and earnings growth outpacing inflation again.

Javid, who described himself as a “low-tax person” during his own leadership campaign, must help decide which of Johnson’s campaign commitments to pass into law. The new prime minister’s proposals include cutting payroll taxes by 20 billion pounds ($25 billion), boosting spending on schools, lowering property taxes and employing more police officers.

Bloomberg Economics estimates that the fiscal stimulus will boost gross domestic product by about 0.3%. But it will make it hard to meet a fiscal rule requiring that structural borrowing is kept below 2% of GDP in 2020-21. That target would be decisively missed in the event of a no-deal Brexit, which could hammer the economy and add a further 30 billion pounds to the deficit.

In his resignation letter, Hammond wrote that his successor would face “genuine choices” once a Brexit deal is done, between increased public spending, reducing taxes, higher investment or faster debt reduction.

The new chancellor also needs to decide on the next spending review. Hammond had hoped to announce a full review, covering the three years starting next April. But with Brexit unresolved, Javid could decide to limit the exercise to one year.

That would disappoint departments craving certainty about their budgets. Only the National Health Service has a medium-term plan. It was awarded an extra 27 billion pounds a year in an above-inflation settlement announced last year.

Another job facing Javid is the appointment of a successor to Bank of England Governor Mark Carney, who is stepping down in January. About 30 people applied for the post, although some international economists chose not to given the political environment.

Career Path

A second-generation immigrant and son of a bus driver, Javid worked for Chase Manhattan Bank and then joined Deutsche in London and Singapore. At one point he ran the German bank’s trading operations in Asia before entering Parliament in 2010.

He headed the Home Office from 2016. Prior to that he had junior positions in the Treasury and also served as culture secretary and business secretary among other roles.

In a film for his leadership bid he didn’t mention Deutsche by name, saying he had “working in international business doing multi-billion deals and helping growing economies.”

“In the business world, it’s pretty black and white: you’ve got to make a profit, you’ve got to hit a sales target,” he said in a 2013 interview. “In politics, it’s not that black-and-white. A lot of it is based on public opinion, it’s based on your performance in Parliament as well as with the public. There’s lots of different variables -- that takes a bit of getting used to.”

To contact the reporter on this story: Simon Kennedy in London at skennedy4@bloomberg.net

To contact the editors responsible for this story: Stephanie Flanders at flanders@bloomberg.net, Andrew Atkinson, Caroline Alexander

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